WORLD OF INDUSTRIES - MOTION, DRIVE & AUTOMATION 3/2017

China’s economy and

China’s economy and manufacturing industry undergoing tectonic shift In the last 2 decades, world has witnessed the rise of China as manufacturing super-power. In the decades to come, China has to face many challenges to keep its manufacturing sector buoyant. NEWS AND MARKETS In the recent years, China saw a drop in its GDP growth rate, from more than 8 % in 2012 to 7.5 % in 2014 and finally dropping to slightly more than 6.5 % in 2016. For the Chinese economy, 2016 saw the weakest economic expansion since 1990. In 2016, services and tertiary industry in China rose by 7.8 % and accounted for 51.6 % of GDP. Manufacturing industry grew by 6.1 %, similar to a 6 % growth a year earlier. China’s domestic consumption accounted for approximately 64 % of GDP, lower than 66.4 % in the preceding year. Investment by the state holding enterprises increased by 18 %, while private investments went up by 3.2 % as compared to 10 % in 2015. Total value of imports and exports in terms of domestic currency decreased by almost 1 % as compared to a 7.0 % decline in the previous year. Despite the drop in GDP numbers, China is supposed to be on track as the country delivered growth within government’s target range of 6.5 to 7 %. For 2017 and 2018, the Chinese economy is set to grow between 6.3-6.5 %, the economic growth will be supported by a sustained recovery in the manufacturing sector, government spending on Author: Sushen Doshi, International correspondent for World of Industries infrastructure projects, relatively low interest rates and rising demand for housing and construction. China’s booming housing market is fueling the demand for construction, thus boosting manufacturing activity and real economic growth. On the currency front, the Chinese yuan is expected to remain relatively stable this year, as strict controls on capital outflow kick in. Meanwhile, global economic growth is set to accelerate from 3 % in 2016 to 3.5 % in 2017. and 3.7 % in 2018. According to an official survey, activity in China’s manufacturing sector has unexpectedly expanded at the fastest pace in nearly five years in March 2017, suggesting that the world’s second-largest economy has gained momentum early this year. The official Purchasing Managers’ Index rose to 51.8 in March from the previous month’s 51.6, and well above the 50-point mark that separates growth from contraction on a monthly basis. The reading was stronger than the 51.6 that many economists had expected and the highest since April 2012. Adding to signs of a global manufacturing recovery, China’s factory output accelerated in March, with the sub-index rising to 54.2 from 53.7 in February. Total new orders also showed improvement, rising to 53.3 from February’s 53. New export orders rose to 51.0, suggesting much of the surge in WORLDOFINDUSTRIES – MOTION, DRIVE & AUTOMATION 3/2017

demand was internal. Manufacturers have stopped shedding jobs, with the employment sub-index rising to the no-change mark of 50, compared to 49.7 in February. But concerns about a more protectionist trade stance under US President Donald Trump could jeopardize a recent revival in China’s exports. Growth in China’s services sector also picked up. The official non-manufacturing Purchasing Managers’ Index rose to 55.1 in March, the highest since May 2014 and up from the previous month’s 54.2. The services sector accounted for over half of China’s economy and for the majority of its 6.5 % growth as rising wages give Chinese consumers the opportunity to spend more. China’s policymakers are counting on growth in services and consumption as they look to rebalance the country’s economic growth model from a heavy reliance on investment and exports. (Data from National Bureau of Statistics, China) Nature of manufacturing industry evolving in China Over the last century, manufacturing has had a strong influence in driving China’s economy. From its impact on infrastructure development, job creation and contribution to GDP, a strong and robust manufacturing industry has created a clear path towards economic prosperity. In the period between 2010 and 2013, the global economy was on the path of recovery after passing through one of the worst economic downturns in history. Moving into 2017 and looking towards to the end of the decade, China’s manufacturing related activities are rapidly evolving. In the list of countries that offer high manufacturing competitiveness, China has been on top for quite some time now. Traditionally, China’s low cost value proposition has been the main factor for its high manufacturing competitiveness. But in the recent years, China has been increasingly focusing on innovation and developing advanced manufacturing capabilities by investing in high-tech infrastructure and skill development. China’s success in developing its own innovation ecosystem lies in a significant growth in R&D spending along with a strong focus on commercialization of technology and strong support from the industry in technology related capital investments. China, as nation and its companies are striving to advance to the next technological frontier and keep their manufacturing sector buoyant in the long run. As the digital and physical worlds of manufacturing converge, advanced technologies have become even more essential to the competitiveness on a company level as well as country level. In fact, technology intensive sectors like ‘high performance computing’, predictive analytics and smart factories dominate the global manufacturing landscape and offer a sturdy path to sustain manufacturing competitiveness. In the face of all the technological advancements and China’s dominance as the world’s most competitive manufacturing nation, yet China’s economic growth in 2016 was its lowest in more than two decades. One of the reasons for slower economic growth is a drop in the industrial activity, represented by the ‘industrial value added’ which grew at around 15 % during its peak in 2007 and has now more than halved to less than 7 %. In China’s case, the drop in industrial activity is due to lower demand with respect to excess capacity at the factories. For instance, China’s auto industry’s capacity utilization is currently at 70 % as compared to nearly 100 % in 2009. Manufacturing’s share of GDP has also declined from 41 % in 2007 to 36 % in 2014, most of which has shifted to services. Photographs: Fotolia z